Selling a Put
You would emply this strategy if you thought the market was not going to fall (if you thought the price is likely to stay the same or to rise).
Such a strategy, therefore, reflects a neutral to bullish outlook for the market in question.
The profit/loss profile for selling a Put is the exact opposite of the profile for buying a Put.
Plotting the profile of a short position of the March FTSE® 6100 Put with a premium of 50 gives us:
Risk
Selling a Put Option is risky. As the market price drops the value of the Put increases. The worst case scenario is if the underlying drops to zero. This would mean that the loss is the strike price minus the premium.
Reward
The maximum reward is the premium. In the example, as long as the FTSE® stays at 6150 or higher, the Option writer will make all 50 points of premium.